Central Bank Governor Discusses Inflation, Economic Reforms, Rural Banking with The Dawn

The exchange rate of the South Sudanese Pounds dropped this month highly on the United States Dollars, changing at around 1200 for 1 dollar on the black market while at the Bank of South Sudan, it maintained a 1082 selling rate, about 3 months or more in a row now.
Central Bank Governor James Alic Garang speaks about banking to residence of Bor in Jonglei on Saturday. Central Bank photo.

By Okech Francis

The exchange rate of the South Sudanese Pounds dropped this month highly on the United States Dollars, changing at around 1200 for 1 dollar on the black market while at the Bank of South Sudan, it maintained a 1082 selling rate, about 3 months or more in a row now.

Citizens mainly look to the black market rates and use them to speculate on how the economy is doing.

On this backdrop, The Dawn Newspaper’s Okech Francis talked to the Governor of the Central Bank, James Alic Garang on Sunday afternoon to ascertain on the economic performance and stability in the country. The first was to understand the factors driving the current currency depreciation and inflation rate in South Sudan.

Answer: The inflation rate might have inched a bit higher and that is something to do with currency depreciation as a result of supply chain disruption that we see across the globe and higher costs of production. There are also other underlying factors and one of which you see that our inflow of dollars depends so much on oil that we produce and the oil that we sell on the international market.  When the oil is not sold quickly enough or if it takes a long time to go to the market then it also means we will have less at any point and having less foreign exchange in the country will mean that the supply and demand are not aligned and that is one reason why you see the currency depreciating. Yes, today we have seen the crisis in Yemen, in the red sea that have caused lifters to take precautionary measures which involves some cost and which also slows down the speed at which cargoes leave Port Sudan for the international market. So yes, the sales of the oil has been badly or slightly impacted by the crisis that you are seeing in Yemen.

This factor has created a challenging economic environment that requires a comprehensive approach to address in order to curb inflation.

Question: What measures are then being implemented to stabilize the exchange rate and curb inflation?

Ans: To stabilize the economy and curb inflation, the Bank of South Sudan is implementing a combination of monetary and fiscal measures which include prudent banking policies, adjustments such as interest rate changes and liquidity management to control money supply dynamics. We are also making efforts to economic or export facilitation, so we are talking about enhancing oil production but at the same time also we are talking about agriculture.

The inflation rate itself, which the public observes that it has gone up in the market, in the way we measure it, there are huge lags behind it, it’s not reported regularly and it’s only reported in three major locations,  it is in Juba, Wau and Malakal. So because of that,  when we look at the actual inflation figures, it has not gone up that much,  it is between 8 and 10 percent while what the public might observe, might be a bit higher than that, so I can say the inflation figures remain relatively stable. What we have seen having a bit of a jump is the exchange rate itself.  As I have always said, our public only observe the exchange rate because that is what they always monitor and if there are changes, then they know that the product market will automatically react by increasing prices in the market but those prices are not immediately reflected in our CPI and our calculation of the inflation itself because of the lags and the limited number of baskets that we use to calculate the CPI which is used to arrive at the inflation. 

The monetary policy is currently the same but its data dependent and can change with the liquidity in the market.

Qn: What progress has been made in implementing the Term Deposit Facility, and how is it impacting inflation and liquidity?

Ans: A huge progress has been made, and simply impacted liquidity in a positive way.  I can say the implementation of the term deposit facility has seen a market improvement and we are able to manage inflation and liquidity within. For us it is a tool that we use to bring more foreign exchange into the banking system and on the other hand also it’s good for the commercial banks because they are able to make profit out of that. So it is a tool that we are now using to manage liquidity effectively. This has also helped to stabilize exchange rate, improve liquidity management and price stability by providing alternative investment option on the market.

Qn: What are the key economic reforms currently underway in South Sudan?

Ans: We are working on modernizing payment systems and one of those key projects is the national payment process which is in a very advanced stage. We are also improving risk and compliance monetary.

What specific initiatives are being taken to stimulate economic growth and development?

Qns: How do you expect the reforms and World Bank/IMF assistance to contribute to growth this year?

Ans: From the World Bank side, it is modest in the sense that we are not getting resources.  What we are getting is capacity building. From the IMF side, we will likely get resources but there are a number of homework that we have to do and that include the completion of the review under PMD, program monitoring with the IMF board. We must also complete the audit of the financial statement of the Bank of South Sudan for 2021 which has delayed. It is incumbent upon me to ensure the audit is completed and we are working to complete it. Resources the IMF gave us in March 2023 also needs auditing still and the settlement of arrears especially national arrears which is the work of the Ministry of Finance and again the Central Bank has to get another external auditor because the contract of the current one has expired.

Qn: What progress has been made in regulating the parallel foreign exchange market? Are there further plans to formalize the market and improve transparency?

Ans: Now we are beginning phase 3. We will give them about a month or 45 days, by saying from this time, the small informal traders will have to register with our banking supervisors and obtain documentation so that they are able to sell foreign exchange in their shops so that when any of the law enforcement agents come and find someone selling, they see the license and go.

We are moving very slowly because we are also trying to inform them, to tell them why it’s very important for the foreign exchange market to get organized. Today if you go on the streets, sometimes if you are unlucky, you get fake dollars, sometimes you get an amount that is less than what you expect to get and you are cheated and sometimes someone can just come and buy and when they are leaving, they are attacked on the way by people who saw them making exchange. So this is something dangerous to the members of the public.

In phase 4 is where we will get say, get registered and operate. Without a license, your property will be confiscated and you reap the consequences, but we are not yet there. Right now we are not yet there but we have made significant progress by eliminating those boys that were standing on the streets.

We believe that by regulating the parallel forex market effectively, we can create a more transparent and efficient foreign exchange system that aligns with international best practices. This will not only help to stabilize the exchange rate but also contribute to improving investor confidence and reducing illicit activities, and forging overall macroeconomic stability. 

These are for the small forex traders. For the bigger ones like bureaus, we are also doing the same thing.  Anyone can register as long as they meet all the guidelines. 

Qn: What steps are being taken to increase financial inclusion in South Sudan, particularly for rural communities and how is the Bank of South Sudan promoting access to financial services for underserved populations?

Ans: The Bank of South Sudan is implementing a range of programs including expanding banking infrastructure in remote areas, opening branches for people in those areas for key operations such as paying salaries or any national funds. We are opening up Central Bank branches in the States, in Rumbek, in Bor and in Wau and we will be opening in Yei and across the country. One way is that, to expand banking infrastructure and the other way is to use mobile money, Mgurush or momo to improve and work on transformation that allows the public to operate on these additional platforms instead of carrying cash all the time.

Leave a Reply

Your email address will not be published. Required fields are marked *